Fri November 30, 2012

Why Mexico Is The World's Biggest Exporter Of Flat-Screen TVs

Most of the news we hear about Mexico these days is about drug-related violence. But it turns out there's another, brighter story there: The country's economy has been growing at a solid pace for the past couple years, driven in large part by solid exports.

Among other things, Mexico is the world's largest exporter of flat-screen TVs. There are a lot of factories just south of the U.S. border, filled with workers putting together televisions. The individual parts come from Asia, but the final assembly is done in Mexico.

"One of the things that's produced in Mexico is the molded plastic covers that go around the TVs," said Paul Gagnon, director of global TV research for the company DisplaySearch.

A big chunk of Mexico's export prowess comes from the North American Free Trade Agreement. Under NAFTA, TVs assembled in Mexico can enter the United States for free. TVs imported from China or Asia typically come with a tariff.

"A TV set barely makes 5 percent margin on a good day, most are pretty much break even," Gagnon said. "If you are going to have to pay a 3 or 4 or 5 percent tariff then that's make or break. Small things like import tariffs make a big difference."

Another advantage for Mexico: location. Even in this global economy where almost anything can be shipped almost anywhere, Mexico is right next to the U.S. — the largest economy on earth. And that still matters.

"Mexico is by far the largest supplier of fruits and vegetables to the U.S.," said economist Louis de la Calle, president of Hill and Kowlton Strategies, Latin America. "We represent 45 percent of the U.S. tomato market,"

De la Calle said that drug violence has made Mexico less attractive for foreign companies. But the country's share of the U.S. market is growing. According to some projections, in a few years, the U.S. will buy more stuff from Mexico than from China.

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Transcript

RENEE MONTAGNE, HOST:

And let's delve deeper now into Mexico's economy and the U.S. trading relationship with that country. David Kestenbaum of our Planet Money team has this report on why Mexico is growing at such a good pace.

DAVID KESTENBAUM, BYLINE: Here's a surprising thing about Mexico: It is one of the largest exporters of flat-screen televisions. Not some Asian country. Mexico.

PAUL GAGNON: I've got a Panasonic plasma and it was more-than-likely built in Mexico.

KESTENBAUM: This is Paul Gagnon, director of global TV research for the company DisplaySearch. He says there are lots of factories just south of the U.S.-Mexico border filled with workers putting together televisions. The components, yes, they come from Asia, but the final assembly is done in Mexico.

GAGNON: One of the things that's produced in Mexico is the molded plastic covers that go around the TVs.

KESTENBAUM: It turns out this is not a story about the low cost of labor in Mexico.

GAGNON: It has to do with the favorable trade agreements.

KESTENBAUM: Under the North American Free Trade Agreement, TVs assembled in Mexico can enter the U.S. for free. Try to import them from China or Asia, you could well have to pay a tariff.

GAGNON: You know, a TV set barely makes maybe five percent margin on a good day. Most pretty much break even. So if you're going to have to pay a three or four or five percent tariff, then that's make or break. You know, small things like import tariffs make a big difference.

KESTENBAUM: That's one thing in Mexico's favor: low tariffs. Another is location. Even in this global economy where seemingly anything can be shipped to anywhere, Mexico is right next to the United States, the largest economy on Earth. And that still matters. Louis de la Calle is an economist in Mexico City and president of Hill and Kowlton Strategies, Latin America.

LOUIS DE LA CALLE: Mexico is by far the largest supplier of fruits and vegetables to the U.S. We represent like 45 percent of the U.S. tomato market.

KESTENBAUM: Forty-five percent of the tomato market is Mexico.

CALLE: Yeah, yeah. Or I mean, like, 80 percent of the eggplants eaten in the U.S. are from Mexico.

KESTENBAUM: Well, thank you for that.

CALLE: Well, no, thank you for buying it.

KESTENBAUM: There are some projections that in 10 years the United States will buy more stuff from Mexico than from China. De la Calle isn't sure that will happen, but for the moment Mexico's share of the U.S. market is growing. De la Calle says drug violence has made Mexico less attractive for foreign companies, but even in Juarez, a place plagued by violence, there's a big factory with workers putting together BlackBerries - many of them destined for the United States. David Kestenbaum, NPR News. Transcript provided by NPR, Copyright National Public Radio.